Both original datasets are not normalized to `Q4 2007`; Wilshire 5000 Total Market Full Cap Index [WILL5000INDFC](https://fred.stlouisfed.org/series/WILL5000INDFC) and [GDP](https://fred.stlouisfed.org/series/GDP). However, `Total Market Full Cap` would imply a value far above 214. On a side remark, there are a bunch of Wilshire indices.
In my opinion, the more commonly looked at is [this one](https://fred.stlouisfed.org/series/WILL5000PR). The reason is that its base is the December 31, 1980 capitalization of USD 1,404.596 billion (so the value on that date is 1,404.569. Therefore, the index is an excellent approximation of dollar changes in the U.S. equity market. For instance, values of 2157.146 on December 30, 1985, and 2164.690 on December 31, 1985, represent an approximate increase of USD 7.5 billion. More details can be found on [FT Wilshire 5000 Index Family](https://www.wilshire.com/indexes/ft-wilshire-5000-index-family/ft-wilshire-5000-index).
The one used by FRED starts with a value of 1. Ignoring all details, this value is obviously not the market cap of 5000 companies. [(Stock) Index construction](https://en.wikipedia.org/wiki/Stock_market_index) is more difficult than most laymen expect (price indices even more so).
Dividing a value of ~100-200 by something that went from ~1.500 Billion to 20.000 billion over the same time is not particularly meaningful. Since you asked why FRED is not doing that, did you try that? I presume that would have answered your question.
The interpretation of the ratio is similar to the [Price-Sales Ratio](https://en.wikipedia.org/wiki/Price%E2%80%93sales_ratio) which is usually total market capitalization (the number of outstanding shares multiplied by the share price) divided by the company's total sales.
$$P/S \ Ratio = \frac{Market\ Cap}{Sales}$$If the value is below 1, the investor is paying less for each unit of sales (or more if above 1).
Think of the US as a giant corporation. Total Market Cap is Wilshire 5000 and GDP is by definition all final goods and services. However, neither of these two series refers to the actual monetary value in USD. So there is a need to make them comparable:
- turn them into actual USD
- normalize them
Whatever you chose, it will give you the same picture (albeit with different numbers). I could not find quickly what the actual value at the beginning of the Wilshire index used by FRED was (potentially a sign that my claim that the other one is more common is reliable). Since I already defined W5000 as being in billions, I know it is easily comparable to GDP. I simply use that as a lazy proxy. Charting both Wilshire indices (normalized to be 1 at the end) shows that they are very similar in magnitude indeed.
[![enter image description here][1]][1]
Now we have two series that are in billions.
[![enter image description here][2]][2]
This looks (coincidence though) very similar to the last value that FRED displays. How come? Looking at the value of both series in `Q4 2007` shows that the two series are almost identical at this time.
[![enter image description here][3]][3]
If you now divide the value in Q4 2007 by itself and multiply by 100, you get 100 for each series. Either way, the ratio in that period will be 1 (or close to). I suspect that may have been a reason for the choice of `Q4 2007` as the base year but I do not have time to look up the reason at the moment. The entire history is therefore very similar. That depends on the choice of the base year, but overall it does not matter much (it is just the value that changes). All that matters is that you can compare it over time.
The next chart shows both Wilshire normalized as above, but now in comparison to the original value used in FRED's computation.
[![enter image description here][4]][4]
Last but not least, one can also "re-scale" with any value. Below is the Buffett Indicator (it seems to go back to an interview Warren Buffett gave to Fortune Magazine) in its original, and scaled by the value of the Wilshire index in `Q4 2007`.
[![enter image description here][5]][5]
The only difference is scale. I suppose the choice of FRED is the more natural one as it makes it more closely related to the Price-Sales Ratio interpretation.
[1]: https://i.sstatic.net/XKlAq.png
[2]: https://i.sstatic.net/45oSW.png
[3]: https://i.sstatic.net/sPs8l.png
[4]: https://i.sstatic.net/5K1AB.png
[5]: https://i.sstatic.net/KSXke.png